What is a QDRO and How Does it Work?
A “QDRO” is a term of art defined by section 206(d) of the Employee Retirement Income Security Act of 1974 (“ERISA”). Specifically, a QDRO is a domestic relations order issued by a state agency or institution (usually a state court) with the authority to issue an order or garnish wages. Typically, the order stems from a need to: divide retirement benefits that are marital property in a divorce; pay current or back-owed maintenance to a spouse or ex-spouse; or pay child support, usually an amount owed in arrears. The order tells the retirement plan how to divide the money, identifies the “alternate payee” who will receive the funds, and directs the plan where and when to provide the amount owed. The order cannot contradict the terms of the retirement plan or it will be rejected.
The attorney preparing the order should be very knowledgeable about the technicalities of pension and retirement plans and familiar with ERISA’s QDRO regulations. Negotiating, drafting, and seeing a QDRO through to qualification is a process that can take from two to 12 months. Where the divorce judgment was issued prior to the QDRO being drafted, it can take much longer due to lost records, an uncooperative ex-spouse, a plan administrator’s lack of knowledge about the QDRO rules, or other obstacles.
QDRO Preparation
Retirement assets can be significant. If a couple is divorcing, it is important to carefully review all retirement benefits at stake. The divorce attorney should collect information about the retirement plans during the divorce process, just as she or he would collect other information about net worth. Once in hand, the attorney(s) should review the plan and negotiate the terms of the QDRO. The attorney for the “alternate payee” should make sure the terms are written into the separation or stipulation agreement, because that language will govern the QDRO’s content. Ideally, the order is drafted and sent to the retirement plan for preapproval; once preapproved, it is sent to the court for review and signature. After filing and obtaining a certified copy, the attorney submits the order to the plan administrator for qualification. If the plan administrator does not approve the order, you do not have a QDRO. Once the order is qualified, the attorney should receive an interpretation letter explaining the way the plan will execute the order, and review it for accuracy.
If the divorce was finalized without reviewing the plan or drafting the QDRO, the attorney should still review the plan information and the parties’ separation or stipulation agreement and draft the order, then submit it to the ex-spouse and retirement plan for preapproval, as described above.
QDRO Rules & Requirements
The United States Supreme Court has often stated, in various ways, that ERISA is “an enormously complex and detailed statute.” Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993). Because retirement plans are subject to complex rules and may be drafted in hundreds of ways, it’s important for you or your divorce counsel to work with an attorney who understands this area of the law. For example, attorneys may believe it is sufficient to state that their client is entitled to a “marital share” of a pension benefit without realizing that all ERISA pension plans are required to provide survivor benefits in case a participant dies before or after retirement. Where divorce occurs, the spouse loses this “survivor” protection, but a QDRO can reinstate the marital share of those benefits for an ex-spouse if it is properly drafted. Time is also of the essence when drafting a QDRO, because if a participant dies before the QDRO is approved, it may mean a complete loss of benefits.
Common Questions around the QDRO Process
Is There a Time Limit to File a QDRO?
Technically, no, at least not under ERISA. Although there is no QDRO statute of limitations in ERISA, delaying the process creates many other obstacles and can be much more expensive the more time that passes. The risk of losing your benefits entirely also increases with time, for example, because of an early death. For 401(k) and similar plans, you may lose the ability to calculate the gains on your share if too much time passes.
How Long Does a QDRO Take?
Where all parties cooperate and major obstacles do not arise, it can be two to six months from the start of the QDRO process to completion. If the divorce is final and the parties are not amicable, it can take six months to two years for the entire process. It is always best to start investigating the retirement benefits to be divided as soon as possible.
Can You File for a QDRO After Divorce?
Yes, but it is much more efficient, and less costly and stressful, to at least draft your QDRO before the divorce is final. Nevertheless, retirement benefits are often significant, so even if it is more difficult or costly after divorce, it is usually worth it financially to obtain the QDRO. The extra income may make a big difference to you in retirement.
Can my Divorce Attorney Handle My QDRO Needs?
Possibly. If your attorney has worked extensively with retirement benefits and QDROs, he or she may understand the type of detailed information to be gathered, all the steps to take and questions to ask related to the retirement plan, and the time needed for the process. However, most divorce attorneys do not like to handle QDROs and understand they may not have the requisite retirement plan knowledge to handle them properly. Many attorneys prefer to send their client off after the divorce to have someone else do the QDROs. It’s best if a divorce attorney works in conjunction with another lawyer who can assist with this one narrow area of the divorce.
Do I Need a Local Attorney to Obtain a QDRO?
For the most part, no, you don’t. ERISA is a federal law and the same QDRO rules apply across the country, regardless of your location. To the extent an order must be filed in your state court, that can be accomplished with a local attorney, or even on your own. It is more important to have an attorney knowledgeable about dividing retirement benefits than it is to have a local attorney.